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.R. No. L-25043 April 26, 1968
ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective
behalf and as judicial co-guardians of JOSE ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE,
respondents.
Leido, Andrada, Perez and Associates for petitioners.
Office of the Solicitor General for respondents.
BENGZON, J.P., J.:
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren
by hereditary succession the following properties:
(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of
Nasugbu, Batangas province;
(2) A residential house and lot located at Wright St., Malate, Manila; and
(3) Shares of stocks in different corporations.
To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo
Roxas and Jose Roxas, formed a partnership called Roxas y Compania.
AGRICULTURAL LANDS
At the conclusion of the Second World War, the tenants who have all been tilling the lands in
Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the parcels which
they actually occupied. For its part, the Government, in consonance with the constitutional
mandate to acquire big landed estates and apportion them among landless tenants-farmers,
persuaded the Roxas brothers to part with their landholdings. Conferences were held with the
farmers in the early part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to
the Government for distribution to actual occupants for a price of P2,079,048.47 plus
P300,000.00 for survey and subdivision expenses.
It turned out however that the Government did not have funds to cover the purchase price, and so
a special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas
y Cia. the amount of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to
be sold to the farmers. Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands
for the same price but by installment, and contracted with the Rehabilitation Finance Corporation
to pay its loan from the proceeds of the yearly amortizations paid by the farmers.

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In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83
and P29,500.71. Fifty percent of said net gain was reported for income tax purposes as gain on
the sale of capital asset held for more than one year pursuant to Section 34 of the Tax Code.
RESIDENTIAL HOUSE
During their bachelor days the Roxas brothers lived in the residential house at Wright St.,
Malate, Manila, which they inherited from their grandparents. After Antonio and Eduardo got
married, they resided somewhere else leaving only Jose in the old house. In fairness to his
brothers, Jose paid to Roxas y Cia. rentals for the house in the sum of P8,000.00 a year.
ASSESSMENTS
On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the
payment of real estate dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise
penalty for late payment, and P150.00 tax for dealers of securities for 1952 plus P10.00
compromise penalty for late payment. The assessment for real estate dealer's tax was based on
the fact that Roxas y Cia. received house rentals from Jose Roxas in the amount of P8,000.00.
Pursuant to Sec. 194 of the Tax Code, an owner of a real estate who derives a yearly rental
income therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is
liable to pay the corresponding fixed tax.
The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of
securities against Roxas y Cia., on the fact that said partnership made profits from the purchase
and sale of securities.
In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas
Brothers for the years 1953 and 1955, as follows:
1953
1955
Antonio Roxas
P7,010.00
P5,813.00
Eduardo Roxas
7,281.00
5,828.00
Jose Roxas
6,323.00
5,588.00
The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the
unreported 50% of the net profits for 1953 and 1955 derived from the sale of the Nasugbu farm
lands to the tenants, and the disallowance of deductions from gross income of various business
expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason that
Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the farmers on installment, the
Commissioner considered the partnership as engaged in the business of real estate, hence, 100%
of the profits derived therefrom was taxed.
The following deductions were disallowed:
ROXAS Y CIA.:

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.R. No. L-25043             April 26, 1968 ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial co-guardians of JOSE ROXAS, petitioners, vs. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. Leido, Andrada, Perez and Associates for petitioners. Office of the Solicitor General for respondents. BENGZON, J.P., J.: Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession the following properties: (1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu, Batangas province; (2) A residential house and lot located at Wright St., Malate, Manila; and (3) Shares of stocks in different corporations. To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania. AGRICULTURAL LANDS At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually occupied. For its part, the Government, in consonance with the constitutional mandate to acquire big landed estates and apportion them among landless tenants-farmers, persuaded the Roxas brothers to part with their landholdings. Conferences were held with the farmers in the early part of 1948 and finally the Roxas brothers agreed to sell 13,500 ...
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